OPNS 430 Professor Wuqin Lin

1. OPNS 430Professor Wuqin Lin

2. Class Material + Grading • Course Pack 1 (Cases & Readings) • Course Pack 2 (Slides) • The Goal • Managing Business Process Flows (MBPF) • The Course Web-Page Group Assignments 20%, Midterm 30%, Final 40%, Class Participation 10% Lin/Operations/Strategy

3. Topics – 6 Modules • Module 1 : Operations Strategy (Shouldice, Wriston) • Module 2 : Process Analysis (CRU-Pizza Pazza, NCC) • Module 3 : Lean Operations (Toyota) • Module 4 : Supply Chain Management (Palu Gear) • Module 5 : Services (The BAT case) • Module 6 : Quality (Quality Wireless, FlyRock) Lin/Operations/Strategy

4. Introduction & Strategy Module • Introduction • Goals and Key Paradigms of Course • Strategic role of Ops • Process view of Ops • A Strategic Framework for Ops • Strategy: Product attributes and the Competitive Product Space • Ops: Capabilities and Processes • Aligning strategy and operations: • Focus • Relationship between process choice and strategy • Shouldice Hospital • Wriston Manufacturing Lin/Operations/Strategy

5. What do you mean by “Operations”? Lin/Operations/Strategy

6. What Is Meant by “Operations”? • “New York-based Merrill, the world's largest brokerage firm and a major investment bank, has been overhauling operations …” • “Microsoft splits into five groups in reorganization” • Microsoft announced a long-awaited reorganization, dividing the company to five major groups and naming two veteran executives to head its online operations. Lin/Operations/Strategy

7. Goals of this course • Introduction to operations as a managerial integration function • Evaluation and Improvement • We will adopt two paradigms Lin/Operations/Strategy

8. Key Paradigm of Course: 1. The Strategic Role of Ops “A company’s operations function is either a competitive weapon or a corporate millstone. It is seldom neutral.” [Skinner ’69] Lin/Operations/Strategy

9. The Strategic Role of Ops… • Most operational decisions have strategic impact • IT at Walmart • Strategic decisions impact operations • FedEx-USPS Lin/Operations/Strategy

10. Key Principle of Course: 2. The Process View of Ops • Chicago Tribune reported: By rethinking the IBM Austin assembly plant and introducing cells, • distance traveled by a card was cut from 1.5 miles to 200 yards • floor space was reduced to half • production tripled with about the same number of workers. [Chicago Tribune, July 1992.] Lin/Operations/Strategy

11. 1. What is a Process? Lin/Operations/Strategy

12. Process Management Information structure Network of Activities and Buffers Inputs Outputs Goods Services Flow units (customers, data, material, cash, etc.) Labor & Capital Resources Operations & the Process View: What is a Process? Lin/Operations/Strategy

13. Advantages of Adopting a Process View of Organizations • Properties: • Applies to any organization • Service operations (health care), manufacturing operations • Applies at any level • 1 activity, 1 clinical service group, 1 hospital, 1 health care supply chain • Is always “customer aware” and focused on outcomes • Key Property: focus on flows rather than snapshots Lin/Operations/Strategy

14. What is Operations Management? • Management of business processes • How to structure the processes and manage resources to develop the appropriate capabilities to convert inputs to outputs. • What is appropriate? Lin/Operations/Strategy

15. 2. What is a “good” Process? Lin/Operations/Strategy

16. What defines a “good process”? Performance: Financial Measures • Absolute measures: • revenues, costs, operating income, net income • Net Present Value (NPV) = • Relative measures: • ROI, ROE • ROA = • Survival measure: • cash flow Lin/Operations/Strategy

17. Benefit driven by customer value Variety V (flexibility) Price p (Cost) • Quality Q: • of product or outcome • of service • Time T: • Rapid, reliable delivery • New product development What defines a “good process”? All organizations compete on delivered value Delivered value of process = benefit to process customers – total process cost Example: patient value priorities for • Emergency care Lin/Operations/Strategy

18. A Strategic Framework for Process Design and Improvement:Three questions competitive strategy • What is our strategic position: how do we compete & provide value in the market? • What is the value proposition to our customers? • Rank (p, T, Q, V) • Given our strategic position, what must operations do particularly well? • Which competencies must ops develop? • Rank (c, T, Q, Flex) • Given needed competencies, how should operations processes be structured to develop competencies that support strategy? • Process choice (structure) and management operations strategy Process structure & mgt Lin/Operations/Strategy

19. Responsiveness B A High Low Price Representation of Strategy:Current Position and Strategic Directions of Movement in the competitive product space Lin/Operations/Strategy

20. Responsiveness A B operations frontier C High Low Price Strategy vs. Operational Effectiveness: The Operations Frontier as the minimal curve containing all current positions in an industry Lin/Operations/Strategy

21. Shouldice Hospital Lin/Operations/Strategy

22. Variety in care B A High Low Price Question 1: Representation of Strategy:Strategic Position in customer value space Lin/Operations/Strategy

23. Variety Flexibility Needed Process Competencies Customer value proposition B Shouldice A High Low High Low Price Cost Question 2: Need competencies to deliver value proposition Lin/Operations/Strategy

24. World-class Emergency Room Flexibility (responsiveness) Productivity frontier = current state of best practice One general hospital World-class specialty non-emergency Shouldice Hospital Costefficiency Question 3: what is the best process design that has the right process competencies to deliver customer value proposition? • A focused process attempts to deliver one specific and narrow customer value proposition (i.e., its priority ranking is clear and constant for all patients) • It is optimized to deliver the needed competencies for one narrow patient segment • Focus does not imply standardization: ER is focused on providing timeliness and flexibility to patient needing emergency care Needed competencies for a given patient type/segment Lin/Operations/Strategy

25. Wriston Manufacturing Lin/Operations/Strategy

26. Total Burden Rates (total overhead cost / direct labor cost) 7 6 5 4 3 2 1 0 Free capacity and Throughput $200 $150 $100 $50 $0 Sandusky, Sandusky, Essex, Essex, Detroit, MI Detroit, MI Saginaw, Saginaw, Lima, OH Lima, OH Lebanon, Lebanon, Tiffin, OH Tiffin, OH Fremont, Fremont, Maysville, Maysville, OH OH Canada Canada MI MI PA PA OH OH KY KY Wriston’s HED Division Plant Network Exhibit 2A Lin/Operations/Strategy

27. Classification of Processes by process architecture • Project • Job Shop • Batch • Line Flow • Continuous Flow Job Shop Flow Shop Lin/Operations/Strategy

28. Characteristics of Processes: Comparison of Process Types • Q: what are the typical managerial challenges in JS vs FS? Lin/Operations/Strategy

29. Process Flexibility High JOB SHOP Jumbled Flow. Process segments loosely linked. (Commercial Printer, Architecture firm) BATCH Disconnected Line Flow/Jumbled Flow but a dominant flow (Heavy Equipment, Auto Repair) Opportunity exists. Costs LINE FLOWS Connected Line Flow (assembly line) (Auto Assembly, Car lubrication shop) Continuous, automated, CONTINUOUS rigid line flow. Out-of-pocket Process segments tightly FLOW Costs linked. Low (Oil Refinery) Product Variety Low High Low Standardization High Standardization Commodity Products Few Major Products One of a kind Low Volume Many Products High volume Matching Process Choice with Strategy: Product-Process Matrix Lin/Operations/Strategy

30. Learning Objectives Operations & Strategy • What is operations? • What makes a good operations? • Two key paradigms of course • Link between business strategy, operations strategy, and operations structure • Product Attributes / Operational Capabilities/Operations structure • Strategy vs. Operational Effectiveness • Trade-offs: • Operational Focus • Process Classification and Relationship with strategy Lin/Operations/Strategy